Buchanan Corporation forecasts the following payoffs from a project. Probability of Outcome 15% 45% 40% Outcome $ 1,000 $ 3,300 $ 5,500 What is the expected value of the outcomes? Assumptions pessimistic moderately successful optimistic
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- Modigliani and Associates has forecasted the following payoffs from a project. Outcome Probability of Outcome Assumptions $0 20% pessimistic $3500 60% moderately successful $6000 20% optimistic What is the expected value of the outcome?Modigliani and Associates has forecasted the following payoffs from a project: Outcome Probability of Outcome Assumptions $ 0 20% pessimistic $ 3,500 60% moderately successful $ 6,000 20% optimistic What is the expected value of the outcomes?Firm X is considering a project and its analysts have projected the following outcomes and their probabilities. Outcome Probability of Outcome Assumptions $ 4,600 30% pessimistic $ 7,800 45% moderately successful $ 13,500 25% optimistic What is the expected value of the outcomes?
- You are considering Project A, with the following information (Assume all statistics given are correct): Economy Probability of Rates of Return ____ Condition State Occurring Project A Market T-Bill Bad 0.2 3.0% 0.0% 4.82% Average 0.4 10.0% 8.0% 4.82% Good 0.4 15.0% 12.0% 4.82% Expected return 10.6% 8.0% 4.82% Standard deviation 5.72% 4.38% 0% Correlation Coefficient between…A firm has two potential investment projects. The project information is summarised in the table below. Project A $670 Project B $700 Expected value of profit Standard deviation of profit Coefficient of variation of profit 175 370 0.26 0.53 Which project has a lower absolute risk level? Which project has a lower relative risk level? Which project would you advise the firm to choose? Explain your answers. ---- --- ---- ..- ---Wallace Company is considering two projects. Their required rate of return is 10%. Which of the two projects, A or B, is better in terms of internal rate of return?
- Suppose an investor is concerned about a business choice in which there are three projects, the probability and returns are given below. Probability Return 0.4 $100 0.4 40 0.2 -30 The expected value of the uncertain investment is $ ----------- (round off to the nearest dollarThe first question // one of the investors wants to establish a project that achieves net returns related to economic activity, as in the following table that shows the returns achieved in the market, noting that the risk-free rate of return is %8 The market is back The project is back Probability Economical Status %40 %20 %25 0.25 Stable %15 0.50 recovery %13 % 10- 0.25 Recession What is required // calculate the required rate of return with an opinion on acceptance or rejection of the project?LEI has the following investment opportunities that are average-risk projects for the firm: Project A B C D E Cost at t = 0 $10,000 20,000 10,000 20,000 10,000 Rate of Return 16.4% 15.0% 13.2% 12.0% 11.5% Which projects should LEI accept? Why?
- 1. The president of the Martin Company is considering two alternative invest- ments, X and Y. If each investment is carried out, there are four possible outcomes. The present value of net profit and probability of each outcome follow: Investment X Investment Y Net Present Net Present Outcome Value Probability Outcome Value $12 million Probability 0.1 $20 million 0.2 A 8 million 10 million 2 0.3 B 9 million 0.3 3 0.4 6 million 0.1 3 million 0.1 D 11 million 0.5 a. What are the expected present value, standard deviation, and coefficient of variation of investment X? b. What are the expected present value, standard deviation, and coefficient of variation of investment Y? c. Which investment is riskier? d. The president of the Martin Company has the utility functionThe net present value (NPV) method estimates how much a potential project will contribute to shareholders' wealth value the project adds; and added value means a higher ✔ stock price. In equation form, the NPV is defined as: Show All Feedback 660 260 NPV = CFO + 3 360 295 Project A Project B -1,170 -1,170 What is Project A's NPV? Do not round intermediate calculations. Round your answer to the nearest cent. $ 250 400 CF₁ CF₂ + .2 (1+1) ² (1+1) + ... + CFt is the expected cash flow at Time t, r is the project's risk-adjusted cost of capital, and N is its life, and cash outflows are treated as negative cash flows. The NPV calculation assumes that cash inflows can be reinvested at the project's risk-adjusted WACC ✓✓. When the firm is considering independent projects, if the project's NPV exceeds zero the firm should accept the project. When the firm is considering mutually exclusive projects, the firm should accept the project with the highest positive ✔✔✔ NPV. Quantitative Problem:…You are considering investing in a project with the following possible outcomes: Probability of Investment States Occurrence Returns State 1: Economic boom 18% 20% State 2: Economic growth 42% 16% State 3: Economic decline 30% 3% State 4: Depression 10% -25% Calculate the expected rate of return and standard deviation of returns for this investment, respectively. O 7.35%, 12.99% O2.18%, 1.69% O 8.72%, 12.99% O3.50%, 1.69%
